When bad news is not good news – 8th October 2021

When bad news is not good news – 8th October 2021

Tapering & Jobs Report 

Or perhaps Bad News is still good news. Jobs miss for September was huge. 194K vs 500K expected. With that number it is unlikely that Powell can Taper this November unless there is a massive reversal in October which seems unlikely.
Business will not hire if they fear tightening and this is the catch 22 that the Fed will have too sooner or later deal with if they want to taper. Likely scenarios are that QE becomes like Social Security that no one will dare to touch and inflation gets out of hands which maybe a very farfetched idea, at least for now.

Fed Balance Sheet & S&P Correlation (Source: St. Louis Federal Reserve )

Nasdaq Down S&P Up

Yesterday was a third up day in a row and above the neckline though as noted the volume needed for confidence was missing. Also that the candle was a shooting star with a long upper and no shadow which looked indecisive. Today’s candle turned it into Deliberation Bearish as noted on the chart below from Investing.com Though the signal is weak as the volume was lower than yesterday.

Nasdaq Chart for 8th October with Volume (Source Investing.com )

Rates Arise

As noted yesterday, reverse head and shoulders/ascending triangle indicated that rates were likely to see some positive movement which they did today. Nasdaq in the short term tends to move in the opposite direction and we saw Nasdaq reverse course from yesterday’s green which could be attributed to rising rates.

10 – Yr Treasury Index -$TNX (Source: Think or Swim)

How come S&P is Up?

Increase in rates bodes well for banks and financials and we saw Financial Sector SPDR Fund ($XLF) rise. This maybe a pattern where money moves out from Tech to Finance as rates rise.

Revisiting Dow Theory
There was a silver lining on the dark cloud spotted today. We saw transportation rise while Dow industrials saw a red candle. The divergence in Transport and Industry as per Dow Theory is a precursor to change in trend and if they converge once again, we could see another confident bull run for a decade. Though the “S” word keeps coming up and unless we really mess up and Stagflation (Yeah I meant stagflation – The “S” Word) should not be a concern and demand looks to be strong.

– Mr. Egg Head

8th October 2021, NJ, USA
Not investment Advise
Please forgive my grammar

Mr. Egg Head

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